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Court File No. 1O-8630-OOCL ONTARIO SUPERIOR COURT OF JUSTICE Powered By Docstoc
					                                               Court File No. 1O-8630-OOCL

                                   SUPERIOR COURT OF JUSTICE
                                       COMMERCIAL LIST

                         ACT. R.S.C. 1985. c. C-36, AS AMENDED

                          NELSON FINANCIAL GROUP LTI).


                         THIRD REPORT OF DOUGLAS TURNER, Q.C.,

                                         NOVEMBER 29, 2010


  1 .1    The first reports of Representative Counsel were dated November 3 and Novem
                                                                                         ber 15 2010.
          Further events have happened in the short span of time since the Second Report
          this Third Report to the Court.

 1 .2    As outlined at paragraphs 2.4 and 2.12 of the First Report, Representative Couns
                                                                                          el appointed a
         Noteholders’ committee and established a web site (Nelson,Voteholders.
                                                                                    ca) to establish and
         maintain communication with the some 273 Noteholders of the Applicant.

 1 .3    Representative Counsel has determined that the communication with the Noteho
                                                                                            lders has
         served a useful function in advising the Noteholders of issues not always includ
                                                                                            ed in the
         Monitor’s website and directly affecting the Noteholders, such as the dissati
                                                                                        sfaction with
         management as described in sections 6,20-6,21 of’ the First Report. The
         channels that have been established by email. fax. telephone and mail
                                                                                       have enabled
         Representative Counsel and Special Counsel          ith the assistance of the Noteholders’
         committee) to learn the concerns and wishes of the Noteholders.

1A        Notehoiders have continuously m.ade known their concerns on the admini
                                                                                 stration of the
         Applicant, Representative Counsel and Special ( ounsel arc eontinuin to
                                                                                  deal with the
         questions of Noteholders.


2. 1     Afler reviewing the Ninth Report of the Monitor (and its Supplement) and
                                                                                    the Monitor’s
         motion for approval of costs heard November 22, 201 0. the Noteholders
                                                                                on November 29,
         21)10 sponnmeouslv irid without inolemnt of Repre%entatlve Eounsel or
                                                                                  SpeLlal Counsel
             independent1 re\ie\ed the costs of the CCAA administration, and considered
                                                                                        the possihi1it
             of the amount of the going—tbr\ard costs, U tO the time of the end of
                                                                                           the CCA\

 2.2          lhrough the offices of the Noteholders’ committee. a substantial majority of the \oteho
                   b dollar alue and ôl0 b numbers of \oteholders requested Representati\ e Couns
             to 1iirard to the Court the correspondence attached as Exhibit I to this Report.

2.3          Representati\ e Counsel has not attached the oluminous email responses to the origina
                                                                                                   l email
             from  the Noteholders’ committee and referred to in Exhibit 1. hut has re iexed
             correspondence (referred to on page 2 of Exhibit 1. and heliees that the respon
                                                                                             ses represent
             S25.585,190,99 of the $35.846, 196.23 in alue of outstanding notes. and 166 of
                                                                                            the 273 notes

All    0!   \hieh is respeetfuI1 submitted

DoUttl5 P(irq/r Q.C.

November 29. 2011)
EXHIBIT 1 to Report of Representative Counsel to Court
                November 29, 2010
  November28, 2010

  Mr. Douglas Turner, QC.
  Barrister and Solicitor
  63 Albert Street
  Uxbridge, Ontario
  L9P 1E5

  Dear Mr. Turner,

 On behalf of the Nelson Noteholders Committee and all Noteholders, we
                                                                              are requesting that
 you, as our representative legal counsel, bring to the attention of Justice Pepall
                                                                                    the following:
  1) that we want to raise very serious concerns and outrage regarding
                                                                                  the exorbitant
     and escalating monitor and legal costs which have not been suitably contro
                                                                                lled, and,
 2) that we want to restrict the role of the monitor and its counsel to only monito
                                                                                    ring activities
    required under the CCAA rules in order to avoid cost duplication, and
                                                                              ensure more cost
    efficient spending.

 The Nelson Noteholders are appalled and horrified, and are objecting
                                                                               vehemently to the
 costs that have been expended to date i.e. $2.2 million and which are forecas
                                                                                  ted to reach up
to $4 million in fees. The largest proportion of these fees has been charge
                                                                                d by the monitor.
These costs are unacceptable, particularly due to the fact that they represe
                                                                                nt approximately
20% of the estimated remaining value of Nelson Financial. Nelson
                                                                             Financial is neither
a Can-West nor an Air Canada. There are not billions of dollars to absorb
                                                                              such costs, and the
creditors in question are private individuals, not institutional lenders. These
                                                                                escalating costs,
coupled with sub-optimal business operating levels, are penalizing
                                                                            the very individuals
who have suffered at the hands of incumbent management and dimini
                                                                              sh the prospect of
financial recovery, We are asking you to make the judge aware of our
                                                                            concerns in order to
have certain costs reviewed, and to contain the overall costs for the remain
                                                                                der of the CCAA

Additionally, on two occasions, the first being July 22, I personally sent
                                                                                 the monitor a
communication (see attached e-mail) expressing my concern with respect
                                                                               to the growing
costs, pleading for better cost monitoring. I had asked that he deal with the
                                                                                   cost issue to
ensure that there was no duplication of lawyers attending every court date, etc.
                                                                                  Again, I sent
another e-mail to the monitor citing these very issues again on November 12,
                                                                                but to no avail,
as costs have continued to mount at an alarming rate.

 After the Noteholders’ Committee conducted a recent review of invoice
                                                                             s, we were ‘eft with
 concerns as to who has been monitoring the Nelson Financial restruc
                                                                            turing costs. Among
 other issues, invoices directed to the monitor from its counsel as well
                                                                         as from its independent
 counsel for the preferred shareholder opinion, were sent for payment,
                                                                           without fully detailed
dockets of time spent, and dates with tasks performed by each
                                                                         lawyer (or paralegal).
Further, a cap of $50K was placed in the Order for the preferred
                                                                           shareholder opinion.
However, the final bill, which the monitor approved, was for $68K. We would
                                                                                  have expected
the monitor to have clearly communicated the fee cap restrictions for the
                                                                               scope of this work
to the independent counsel.
 Additionally, we have concerns regarding invoices that were directed to Nelson Investm
 Group (a separate entity from Nelson Financial), by the applicant’s counsel, but were paid for
 by Nelson Financial. We would ask once again, who was supposed to be monitoring these
 costs? As Noteholders, we were under the impression that the monitor was the watchdog.
 The monitor’s counsel e-mailed our special counsel on November 21, 2010 statng that the
 “Monitor will not be taking a position on anyones professional fees other than its own
 those of its counsel”. This statement puts into question why the monitor is not “taking
 position” on costs when our understanding is that the review of fees to protect our assets is
 within his mandate.

  The appointment of representative counsel has been and is still incredibly important for the
  protection and preservation of the Nelson Noteholders’ rights and remaining investm
 The Noteholders’ Committee is comfortable with the fees that representative counsel and its
 special counsel have had to charge to date, having had to deal with unexpected issues
 as the Foscarini-Mackie matter, the preferred shareholder issue, and ultimately, the initiation
 and negotiation of the removal of incumbent management from Nelson Financial. At times,
 our representative counsel’s progress was impeded by the monitor as he was
 forthcoming with information that was requested on numerous occasions (referred to in Doug
 Turner’s first report to the court, paragraphs 6.4.1 and 6.4.2). The information reques
 included prior financial statements and needed financial information regarding the applicant’s
 current and past business management.

We ask that the Interim Operating Officer (100) in consultation with representative counse
take the primary responsibility for the design and development of both the business and
restructuring plans. The 100 would consult with the monitor on an as needed basis.
Additionally, we are requesting as our legal representative, that you seek to restrict the
activities of the monitor and its counsel to basic monitoring only, including the preparation of
the independent report on the restructuring plan as required by CCAA rules as we
understand them. It is imperative at this point, after 8 months into CCAA proceedings, that
we move to accelerate this process as this matter has been dragging for too long, and the
monitor has been unable to get prior management to advance this process in a rapid
cost-contained manner.

Attached you will find the support and letters from Nelson Financial Noteholders representing
71% of the value ($25.6 million) and 61% of the promissory notes outstanding (as of
November 28, 2010) with respect to their opposition to the costs in this matter,
and favouring the reduction of the monitor’s role to basic monitoring required under
the CCAA.

We thank you in advance for your assistance in this matter.


Tina Young (a Nelson Financial Noteholder)
On behalf of the Nelson Financial Noteholders Committee and all Noteholders
    - Original Message      -

 From: IinaYuna
 To: A. Jon Pane
 Cc douninrner nh ni                           m                     pnt
 lo nsnd
 Sent: Thursday. July 22, 2010 4:59 PM
 Subject: Nelson Excessive Restructuring Costs


Further to our conversation regarding legal costs, I took a look at the cash flow projection from
s-our 5th report out today. If ou take $766,000 (your total for restructuring costs including the
monitor) br the 11 weeks you have projected. this works out to $51,066 per week! (close
enough to the $60,000 number I quoted you). These costs are unacceptable for all stakeholders
involved and must be put in check. If this needs to be brought before the court as to the
excessive and possibly abusive nature of legal costs than we must. The initial costs of $1.2

million set aside for the restructuring, will be far exceeded, and at this rate. to the tune of more
than $3 million!

I will site once again an example of this abuse of stakeholders funds: at the noteholders
meeting on Wednesday. July 2 1. 2010, there were 2 lawyers from Gowlings Cliff Prophet

and Frank [arnie only one needed to be there to take notes and represent Marc. etc.: there

were 2 lawyers for the monitor, Mr. Grout and Ms. Aggarwal I would say the same applies

here, that only one lawyer needed to be there.

There have also been a number of instances where there has been more lawyers than needed
showing up at court hearings.

I am strongly requesting that this is dealt with immediately with all parties as the
committee will be requesting more accountability and documentation with respect to
these fees. Our expectation (and the court’s expectation) of the monitor is to be the
“watch dog” of these costs.

On a go forward basis:
we expect coordination amongst all lawyer and monitor parties with a list of who really
needs to be in court or other relevant activities, ensuring there is no double counting of
people and fees.

Thank you for your assistance in this very important matter.
Tina Young
    -  Original Message   -

 From: Turn Yonnu
 To: ;\ John Pne
 Cc: Shcrr\_To nscnd douu turner
 Sent: Friday, November 12. 2010 4:25 PM
 Saz bject: Excessive Restructuring Costs

Hi John,

 As a lollow up to my email of July 22 I had requested on behalf of the noteholders that there

 would he more careful use of the various lawyers with respect to the go fonvard in order to
 manage the continued excessive restructuring costs which are approaching $3 million as I had
 previously forecasted, I understand that in recent weeks, that there has been the “doubling up”
 of the monitor’s lawyers and Marc’s lawyers (I understand that there were doubles in court
 today). I would like it if you would please advise the lawyers involved that we are only paying
 for the services of one lawyer to attend all of these activities it continues to be unacceptable

that this doubling up of professional fees continues. I have conferred with the incoming 100
and we expect lull accountability of these recent activities as we will require appropriate
justification for these and any go forward where doubling of lawyers may be deemed
Thank you for taking care of this important issue.
RS.C.. 1985 c. C-36. AS AMENDED

 )1 NELSON EINAN(l \I (iROEP LTD. (the App1icanf’)
                                                                                        Cour File No, 1 0—8630—()()CL

                                                                         SUPERIOR COURT OF JUSTICE
                                                                             (COMMERCIAL LIST)

                                                                  THIRD REPORT OF I)( )U(; I AS TURNER,
                                                                  Q.C,, REPRESENTATIVE COUNSEL FOR
                                                                  NOTEHOLDERS NOVEMBER 15, 2010

                                                                  I)ouglas Turner Q.C. as Representative Counsel
                                                                  for the Noteholders of Nelson Financial Group
                                                                  Barrister & Solicitor
                                                                  63 Albert Street
                                                                  P.O. Box
                                                                  Uxbridgc. Ontario
                                                                  L9P 1E5

                                                                  Tel: (905) 852-6196
                                                                  Fax: (905) 852-6197

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